Your Money.

Is A Home Warranty Worth The Price?

Policies Benefit Buyers And Sellers, But Base Your Decision On Condition Of The House

February 19, 1996|By Carole Burns, New York Times News Service.

Last fall, within a week after Paula D. Barnett moved into a 24-year-old Colonial-style house in Haddam, Conn., her stove, freezer and water heater broke down.

But, Barnett said, it wasn't the disaster it could have been. A home warranty, purchased by the previous owner, paid for more than half of the $632 in repairs.

"It was nice to pick up the phone and call an 800 number," she said. "Within 15 minutes, I had confirmation that someone was coming to the house and what time they'd be there that day."

Home warranties--a kind of insurance or service contract that the seller, buyer or real estate agent buys from a warranty company--are now being suggested by more and more real estate agents as a good way for sellers to attract buyers and as a way for buyers to minimize the amount of money they spend after moving in.

What's covered

Policies last for one year after the sale and typically cover the water heater, heating and air-conditioning systems, the range, oven, built-in microwave, dishwasher, trash compactor, garbage disposal, central vacuum cleaner, washer and dryer, refrigerator, plumbing and electrical systems. Pools, hot tubs, spas and well pumps can be covered for an additional fee.

Warranties are available only on existing homes, not on new homes, although builders sometimes offer their own warranty packages. Freezing pipes and leaking roofs are not covered, nor are floods and fires.

Typically, sellers agree to buy the warranties when they list their homes with real estate agents. They don't pay for the warranties until the homes sell, but the homes are covered while they are on the market (the price is the same no matter how long it takes to sell).

The policies often pay for themselves, but deductibles can run as high as $150 for each call.

"You have to weigh the cost against the potential problems in the home," said Jordan Clark, the president of the United Homeowners Association, a consumer-advocacy group in Washington.

"Never buy a home because it has a warranty. You should know what home you're getting--period--and base your decision on that."

Warranties must be bought through a real estate agent, who usually deals with only one company, so in practice it's hard to shop around for a policy. Agents get a small fee for each warranty they sell, usually about $60.

Popularity rising

The number of home warranties sold in the United States rose 16 percent from 1993 to 1994, according to the National Home Warranty Association, a trade group. They are most popular in the Sun Belt.

Gary Johnson, vice president for the North division of American Home Shield Corp., the country's largest home warranty company., said that in Illinois it experienced a 27 percent growth from 1994 to 1995.

Home warranties are most often praised as an effective way for a seller to market a home, especially one that is more than 10 years old. E.R.A. says that homes with a warranty sell 27 days faster and for a 2.4 percent higher price than homes without one. They are also 25 percent less likely to fail to sell altogether.

Marsha E. Rand, the owner of Century 21-Rand in New City, N.Y., one of the largest Century 21 franchises in the country, said that warranties are most popular among first-time home buyers.

"They're putting their last dime into down payment, insurance, whatever," Rand said. "If the water heater goes, they don't have a backup."

Realty agents like them

Real estate agents also have their own reasons for wanting a seller or buyer to purchase a home warranty. Without one, agents are often the first people buyers call if the heating systems break down the day after they move in, and agents often end up writing the check to promote good will, said James R. Beach, the director of marketing for the real estate division of the Homeowners Marketing Service Inc. in Hollywood, Fla., the country's second-largest home warranty company.

But real estate agents are certainly not obligated to cover such breakdowns.

"Generally, when you buy real property and you close, you're done," said Susan B. Somer, deputy bureau chief for consumer fraud and protection in the New York State attorney general's office.

To be covered, appliances must be in working condition when the warranty is purchased. Some companies like E.R.A. require an inspection, while others let the repairer tell them if the appliance was already out of commission before the claim was made.